THE BRITISH Government’s overhaul of financial regulation has been thrown into disarray by the surprise departure of Hector Sants, chief executive of the Financial Services Authority (FSA) and a future deputy Governor of the Bank of England.
Mr Sants was in charge of the regulator during the banking crisis and spearheaded vital reforms in his five years at the helm.
He announced today he will step down in June.
It is the second time he has quit. In February 2010, he announced his resignation only to be persuaded by George Osborne to stay to help lead the transition to the new regulatory regime.
The Government is pushing through the biggest overhaul of banking regulation in 15 years, moving the FSA’s responsibilities for supervision of banks back to the Bank of England, where it will become the Prudential Regulatory Authority (PRA), and creating a separate consumer watchdog.
Mr Sants was due to become chief executive of the PRA and one of the Bank’s three deputy Governors once the transition was complete next year. His departure will leave the Bank of England and the Government looking for a new regulatory boss.
His term in charge of the FSA was marked by the biggest banking crisis in a century. Having joined the FSA’s wholesale markets arm in 2004 from Credit Suisse, he became chief executive in July 2007 – just two months before the run on Northern Rock.
The following year saw the nationalisation of both Northern Rock and Bradford & Bingley as well as the taxpayer bailouts of Lloyds Banking Group and Royal Bank of Scotland.
A recent report from the FSA into RBS’s failure cleared Mr Sants of any wrongdoing, but he came under intense scrutiny from the Treasury Select Committee (TSC) last month. A number of MPs on the TSC are thought to have had serious reservations about his appointment as a deputy Governor of the Bank.
However, Mr Sants has been widely praised for his root-and-branch transformation of the FSA in the past five years.
He said: “When I agreed to stay on as chief executive in 2010, I committed to stay and deliver an orderly transition to the Government’s new regulatory structure. The project is now firmly on track and with the establishment of twin peaks within the FSA I will have achieved that goal.
“Now is the right time to hand over to those who will deliver the long term goals.”
Lord Turner, FSA chairman, said: “The major reforms made within the FSA since the financial crisis and the progress in delivering the Government’s plan would not have been possible without Hector. He is a truly outstanding public servant of great integrity and has provided the FSA with dedicated leadership and focus through extremely turbulent times.
“I am very sorry to see him leave but I understand his decision, now that he has delivered what he set out to achieve. I’d like to thank him for all that he’s done.”
Mr Sants’s responsibilities as head of the Prudential Business Unit, which will become the PRA, will be taken on by Andrew Bailey, until recently the Bank of England’s chief cashier.
Mr Bailey could potentially fill Mr Sants’ shoes as PRA chief executive and deputy Governor, but no decision has yet been announced on succession.
The Bank of England said: “The Bank will work closely with HM Treasury in searching for the first chief executive of the PRA who will also be the Deputy Governor with responsibility for Prudential Regulation. That appointment will be made by the Chancellor. The person appointed will take up the position when the PRA comes into existence in 2013.”